Graeme Sloan/Sipa USA via AP Images
The Marriner S. Eccles U.S. Federal Reserve Building in Washington
The Revolving Door Project, a Prospect partner, scrutinizes the executive branch and presidential power. Follow them at therevolvingdoorproject.org.
“We need to raise unemployment. We need to slow the economy. We need to cut off a great recovery.”
Witness the message America’s pre-eminent financial talk show is blaring out to the markets. In a widely watched segment last Friday, Joe Kernen, co-host of CNBC’s morning show Squawk Box, sighed and shrugged that unfortunately, there’s just no alternative to the Federal Reserve raising interest rates to at least 4 percent, with the explicit goal of throwing millions of people out of work so they’ll stop spending money and slow down inflation.
“I guess there’s no reason to talk about how we got in this mess, but it’s just unfortunate that we need to do things that are counterintuitive or counterproductive,” Kernen grumbled. “We’re in this mess of cutting off our nose because of—ah, for some reason, and the answer that we’re giving, what’s that got to do with Putin’s price hike? What’s that got to do with inflation that’s all around the place caused by other things? So our people here in this country [have] got to take it on the chin to lower inflation—it’s not a great way to do business.”
Contra Kernen, there very much is a “reason to talk about how we got in this mess.” As has been shown over and over and over again, the root of our current inflation is supply chain chaos caused by COVID-19, exacerbated by the war in Ukraine, plus merciless price-gouging from corporations with significant market power. Shrinking the money supply doesn’t unclog the Port of Los Angeles, or get more wheat from Ukrainian ports. The only way it can cut inflation is by making a significant fraction of Americans too poor to buy what is being produced.
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Indeed, it could conceivably worsen inflationary factors over the medium term. The most recent Consumer Price Index numbers also continue a trend of staggeringly high rent increases, which are hitting smaller cities hardest and account for 40 percent of core inflation overall. The obvious way to cut these increases is to build more apartments in hot markets, but the Fed’s rate hikes have markedly slowed the rate of construction by jacking up the cost of financing.
A letter to the White House from over 220 tenant organizations last month outlined actions that six different federal agencies could take immediately to alleviate the crisis, but the Federal Reserve is not one of those agencies. If rate hikes did eventually induce landlords to lower rents, that would only come once landlords couldn’t fill empty rental units at current prices, because too many people are unemployed or underemployed to replace the tenants they’ve already evicted. All this would only exacerbate the severe housing shortage in many cities.
Kernen’s analysis is blinkered and callous toward the suffering of millions that rate hikes would deliberately aim to impose. Yet by even invoking the people the Fed intends to hurt, Kernen was one of the more sympathetic voices in the Squawk Box segment. Far more brutal was the guest to whom Kernen was responding: disgraced former Federal Reserve Vice Chair Richard Clarida.
The worst harm policy officials can do, apparently, is failing to bring the pain on the poor fast enough.
“Until inflation comes down a lot, the Fed’s really a single-mandate central bank,” Clarida declared. That’s a wildly radical statement: The Fed is legally bound to a “dual mandate” to balance fighting inflation with achieving full employment. (Coretta Scott King, among other civil rights icons, played a key role in adding the full-employment mandate via the 1978 Humphrey-Hawkins Act.) Clarida’s claim, which he repeated later in the interview, meant he was explicitly saying the Fed should ignore its legal responsibility to support workers.
Clarida made it clear that he wasn’t ignorant to the supply-side causes of our inflationary shock, he just didn’t care. “The problem is that the shock the economy took globally, with the shutdown and the pandemic and the reopening, was an enormous shock. ... I think Chair Powell is correct that over the long haul, you can’t prosper in the economy, as we saw in the ’70s—you [Kernen] and I remember the ’70s—with high invariable inflation.”
It’s incredible that Clarida is even allowed to show his face in polite society, much less opine on his former employer’s actions. Clarida left the Fed in January after Bloomberg reported last October that he’d shifted between $1 million and $5 million of his money out of safer bond funds and into riskier stock funds on February 27, 2020, one day before Powell signaled that the Fed would take extraordinary measures to prop up the stock market during the early days of the COVID pandemic. As second-in-command of the Fed, Clarida would have known about the speech and the Fed’s deliberations at the time for more specific policy interventions. On the day Clarida shifted into stocks, the Dow Jones, S&P 500, and Nasdaq had been falling for four straight days, and Wall Street was shaking at the thought of what COVID was going to do to the economy.
Clarida was the third Fed governor to make suspiciously timed trades in the early pandemic. Former Federal Reserve Bank of Dallas President Robert Kaplan made multimillion-dollar stock trades throughout 2020, and former Federal Reserve Bank of Boston President Eric Rosengren made major real estate investment trust deals during a time of urban housing turmoil. All three ultimately resigned, and all three have made out quite handsomely since.
Kaplan, who continues to deny wrongdoing, is on the boards of numerous philanthropies and charitable organizations, according to his personal website. These include medical research organizations like Project ALS, but also the Baker Institute, which is a policy think tank based out of Rice University, and the George W. Bush Institute.
Rosengren opened a consultancy, according to his LinkedIn profile, but the business itself has no website or digital presence. Many high-ranking policymakers who open off-the-grid consultancies end up trading on their connections as “shadow lobbyists,” but without any paper trail, there’s no way to know what Rosengren Consulting LLC actually does. Rosengren also teaches at the Massachusetts Institute of Technology’s Sloan School of Management.
Next month, Clarida will be joining the $2 trillion investment giant PIMCO as a managing director, in a job similar to one he held for 12 years before joining the Fed.
There’s no reason to think that any of these men will lose their jobs if the Fed induces a recession. Kaplan and Clarida were wealthy investors before they entered government service, all three men tried to become even wealthier with some suspiciously timed trades, and, resignations aside, none seem to have suffered much for it reputationally or financially.
On CNBC, Clarida was mostly greeted as an old friend. Notably, it was a print reporter, not a TV talking head, who finally brought up the hard question. The New York Times’ Andrew Ross Sorkin, who also co-hosts Squawk Box, asked Clarida if he felt his trades affected the Fed’s credibility. “The Fed has put in place some new rules and regulations on that which I think make a lot of sense, and I think those are fine efforts,” Clarida replied crisply. When Sorkin pushed him further, Clarida added, “I can’t imagine anyone who would be capable of doing it [serving at the Fed] would say no to the position based upon the rules that are now in place.”
But to most of the CNBC hosts, the harm Clarida did to the Fed’s credibility was not through his potential insider trading, but by not raising rates when he had the chance, or trying to block the pandemic relief packages. “Would you agree that the Fed enabled fiscal policy to run amok?” Kernen asked. “Was there groupthink on the Fed in that period of 2021?” Steve Liesman added, following up to ask, “Why wasn’t there more dissent on the Fed? Why wasn’t there more people coming forward and saying, ‘You know what, we need to put the brakes on this?’”
Under the dominant logic in our economic and financial media, it is the unfortunate price of doing business that millions of people who did nothing wrong must have their lives ruined if inflation eats into pocketbooks and profit margins too much. The worst harm policy officials can do, apparently, is failing to bring the pain on the poor fast enough. Meanwhile, it’s also unfair or impolite to scrutinize suspected or proven white-collar criminals if they’re wealthy or well connected enough. We see it with Clarida, we see it with Steven Rattner, we see it with Michael Milken.
To these elites, unemployment is an abstract concept—something vaguely connected to those unappealing homeless people they keep having to see when they drive through the city, but not something they’ll ever have to experience themselves. In this headspace, trying to keep the Fed from raising unemployment is like trying to keep the ocean from producing tidal waves.
But of course, it isn’t true that there is no alternative to bludgeoning the whole economy with rate hikes. We could target the rent increases driving so much of our current inflation. We could coordinate an interagency council focused on regulating industries for prices, as the Modern Money Network’s Nathan Tankus has proposed. Rep. Jamaal Bowman has even introduced a bill to permit temporary price controls and regulations on inflationary sectors, in a nod back to John Kenneth Galbraith’s support for permanent price control offices. The bill’s endorsers include a host of unions, consumer groups, anti-monopoly organizations, and racial and climate justice groups.
No one watching CNBC is likely to hear about any of this, and like it or not, CNBC and other cable programs teach most Americans how to think about the economy. Instead, they’re likely to hear multimillionaire talking heads ask multimillionaire experts, some of them potential criminals, how to get rich off of poor people suffering for the sake of starving demand. The American public deserves better from its leading media outlets than apologia for corrupt elites and manufacturing consent for throwing innocent people into poverty.
